What Happens to the Debts Owed to the Deceased?

Your loved one may have been in a financial position where they could lend out money and assets to others. However, most unfortunately, they may suddenly and unexpectedly pass before they can ever see this return come to fruition. If you discover this upon handling their estate matters in the wake of their death, you should respond appropriately. That is, please continue reading to learn what happens to the outstanding debts owed to your loved one after they are deceased and how one of the experienced Butler County estate planning attorneys at Heritage Elder Law & Estate Planning, LLC, can help you ensure everything is squared away, so to speak.

What happens to the debts that are owed to the deceased?

The debtors who received a loan from your loved one are not automatically “off the hook” when they sadly pass away. Rather, now that your loved one can no longer serve as a creditor in this arrangement, their estate may be considered the creditor. This is to say that the appointed executor of their Last Will and Testament document must identify and collect any outstanding debts owed to them. This may entail tracking down debtors, notifying them of your loved one’s passing, instructing them on how and where to send their repayments, and initiating a legal action if they fail to comply. Ultimately, once these debts are paid off and added to the estate, your executor may distribute them to the named beneficiaries as directed by the will document.

What happens to the debts owed by the deceased?

In the same way the designated executor must collect any outstanding debts owed to the deceased, they are also responsible for paying off any debts the deceased owes to other creditors. Again, similarly, your loved one’s debts do not simply disappear once they pass on, but their estate becomes primarily liable for settling them. This means that the executor may use the funds within the deceased’s bank accounts and investment accounts, or even liquidate their real property and personal belongings, to resolve these debts. From here, the remaining money and assets may be distributed amongst the beneficiaries accordingly.

It is worth mentioning that this process may only apply to your loved one’s individual debts. For example, if they had a co-signer on a loan, the surviving individual may be charged with resolving the outstanding balance. On the flip side of this, though, an executor may be hindered from taking funds from a jointly shared bank account to pay off the deceased’s debts, thanks to right of survivorship laws that allow such accounts to bypass the probate process altogether.

We understand how confusing this may be, especially if this is your first experience with such serious money matters and the overall probate and administration processes. If you need help preparing for this upcoming legal proceeding, turn to one of the skilled Butler County estate planning attorneys. We at Heritage Elder Law & Estate Planning, LLC, have gone through this countless times before, and we are ready to go through it again to support you.